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Presented by: Office of the Under Secretary for PolicyUnited States Department of Transportation

Preparing a Benefit-Cost Analysis

+BCA and BUILD

All project sponsors should submit a benefit-cost analysis (BCA) as part of their BUILD grant application

USDOT will consider a project’s demonstrated benefits and costs in evaluating applications

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+ What is a BCA?

Comparison of the monetized value of a project’s impacts on users and society (benefits) to the resources required to implement the project (costs)

What it is notEconomic Impact AnalysisFinancial AnalysisFiscal Analysis

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+ What Makes a Good BCA?

Transparent & Reproducible: should provide enough information for a reviewer to follow the logic and reproduce the results

Technical memos describing the analysis and documenting sources of information used (assumptions and inputs)

Spreadsheet or database files showing the calculations

Present annual benefit & cost streams by type (not just summary output)

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USDOT economists will review the applicant’s BCAExamine key assumptionsCorrect for any technical errorsPerform sensitivity analysis on key inputsConsider any unquantified benefits

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USDOT BCA Review

+BCA Guidance

Covers all USDOT discretionary grant programs

Contains most recent recommended values

Available at: https://www.transportation.gov/office-policy/transportation-policy/benefit-cost-analysis-guidance

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Should measure costs and benefits of a proposed project against a baseline alternative (aka “base case” or “no build”)

“Do’s” Factor in any projected changes (e.g., increased traffic volumes) that would

occur even in the absence of the requested project

Factor in ongoing routine maintenance

Consider full impacts of no build (e.g. bridge closure/posting)

Explain and provide support for the chosen baseline

“Don’t’s” Assume that the same (or similar) improvement will be implemented later

Use unrealistic assumptions about alternative traffic flows under build/no-build—consider “next best” alternative

Baselines7

+ Demand Forecasts

Most benefit estimates depend on ridership or usage estimates

Provide supporting info on forecasts Geographic scope, assumptions, data sources, methodology

Provide forecasts for intermediate years Or at least interpolate—don’t apply forecast year impacts to

interim years

Exercise caution about long-term growth assumptions Consider underlying capacity limits of the facility

Carefully explain/justify deviations between baseline and build case Especially if projecting decreased travel/demand after

infrastructure improvements

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+Analysis Period

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Should cover both initial development and construction and a subsequent operational period

Generally tied to the expected service life of the improvement or asset

I.e., the number of years until you would anticipate taking the same action again

Lesser improvements should have shorter service lives

Avoid excessively long analysis periods (over 30 years of operations)

Use residual value to cover out-years of remaining service life for long-lived assets

+ Inflation and Discounting

Inflation AdjustmentsRecommend using a 2017 base year for all cost

and benefit data

Index values for the GDP Deflator included in the BCA guidance

DiscountingUse a 7% discount rate

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+Scope of the Analysis

Project scope included in estimated costs and benefits must match Don’t claim benefits from an entire project, but only count costs

from the grant-funded portion

Scope should cover a project that has independent utility May need to incorporate costs for related investments

necessary to achieve the projected benefits

Project elements with independent utility should be individually evaluated in the BCA BCA evaluation will cover both independent elements and the

submitted project as a whole

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+Benefits

Should be estimated and presented for different types of impacts/benefits

Do not need to be tied to the categories in the selection criteria (but should be consistent with outcomes claimed in application narrative)

Tips

Don’t assume constant annual benefits without a good reason to do so

Negative outcomes should be counted as “disbenefits”

Avoid double-counting different types of benefits

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+Travel Time Savings

Recommended values found in BCA Guidance

See footnotes for discussion on non-vehicle time, long-distance travel, business travel

Note that commuting time is not business time

Consider vehicle occupancy where appropriate

If valuing travel time reliability:

Carefully document methodology and tools used

Show how valuation parameters are distinct from general travel time savings

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+Operating Cost Savings

Avoid double counting operating savings and other impacts Ex: truck travel time savings; reduced fuel usage

Vehicle op costs - typically a function of distance traveled May also have increased fuel consumption from

traffic delay/idling

Localized, specific data preferred Standard per-mile values for light duty vehicles

and commercial trucks provided in BCA guidance

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+Safety Benefits

Typically associated with reducing fatalities, injuries, and property damage from crashes and other incidents

Projected improvements in safety outcomes should be explained and documented

Show clear linkage between the project and those improved outcomes

Use facility-specific data history where possible—not just statewide averages

Available crash-related injury data may need to be converted from KABCO scale to MAIS (see BCA Guidance document)

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+ Emissions Reduction Benefits16

For infrastructure improvements, emissions reductions will typically be a function of reduced fuel consumption

Recommended unit values for CO2, SO2, VOCs, NOx, and PM2.5 found in BCA guidance

Be careful about the measurement units being applied

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Primary benefits typically experienced directly by users of the improved facility

Includes both “existing” users (under baseline) and “additional” users attracted to the facility as a result of the improvement Standard practice in BCA would value benefits to

additional users less than those for existing users (see BCA guidance)

Benefits to Existing and Additional Users

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Projected magnitude Should be based on careful analysis of the market and potential

for diversion from other modes that might be attributable to the project

Benefits estimates should not be based on comparing user costs of the “old” and “new” mode Would be reflected in benefits to additional users

Reductions in external costs would be relevant E.g., emissions costs, pavement damage

If using 1997 HCAS values… Don’t apply urban values to rural truck travel

Should net out highway user fees paid by trucks from marginal pavement damage costs

Modal Diversion18

+Other Benefits

Resilience

Consider expected frequency of events and their consequences

Noise Reduction

Emergency Response

See FEMA methodology for fire and ambulance services

Quality of Life

Property Value Increases

Is a measure rather than a benefit—avoid double-counting

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+Unquantified Benefits

Should quantify magnitudes/timing of the impacts wherever possible

Should clearly link specific project outcomes to any claimed unquantified benefits

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+Costs

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Include all costs of implementing the project

Ex: design, ROW acquisition, construction

Regardless of funding source

Include previously incurred costs

Costs should be stated in constant dollars

Match base year used to monetize benefits

Likely need to convert YOE costs from project budget (show/explain in the analysis)

+Maintenance Costs

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Net maintenance costs may be positive or negative New facilities would incur ongoing maintenance

costs over the life of the project

Rehabilitated/reconstructed facilities may result in net savings in maintenance costs between the build and no-build

+Residual Value

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For assets with remaining service life at the end of the analysis period, may calculate a “residual value” for the project

Simple approach: linear depreciation

Be sure to property apply discounting

+Comparing Benefits to Costs

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Net Present Value (Benefits – Costs)

Benefit-Cost Ratio (Benefits / Costs) Denominator should only include capital costs (i.e.,

net maintenance costs and residual value should be in the numerator)

+ Other Issues

Economic Impact Analysis (EIA) BCA measures the value of a project’s benefits and costs

to society

EIA measures the impact of increased economic activity within a region attributable to a project

EIA represents the translation of “first order” benefits into other economic outcomes—not added benefits to be counted in BCA

Transfers

“Avoided” Costs

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+More information

Visit –https://www.transportation.gov/BUILDgrants

Email – BUILDgrants@dot.gov

Applications – Must be submitted on or before 8:00 PM E.D.T. on July 15, 2019

+ 27Question and Answer Session